Ideas for a progressive future

The Finance Curse

New book published by Nicholas Shaxson

Older readers may remember news bulletins once a month used to report on the balance of trade. In those days it was sometimes in the red, sometimes in the black. At the end of the bulletin, there would be a statement of our ‘invisible earnings’ which were helpfully explained as – if my memory is correct – earnings from banking and insurance, and these would often be sufficient to turn a negative balance into a positive one.

For many I am sure, the City was a source of pride. Although we were a small nation, the City was one of the world’s big three or four financial centres and truly ‘punched above its weight’. We used to see films of the trading floor with groups of men holding notebooks doing multi-million pound trades, and we were often told about the honourable system which operated and ‘my word is my bond’. It had a kind of solid British feel to it that went along with cricket, cream teas and carried with it the notion of honourable conduct among gentlemen. It was seen as a benefit to the nation.

Then came big bang and the electronic revolution which meant the trading floor of the stock exchange is no more. Brokers and Jobbers also disappeared as separate players in the buying and selling of shares and bonds. Foreign banks set up shop and the City grew enormously.

City of London. Pic: Salisbury Compass

Recent revelations have shown the City in a completely different light however. Far from being a benefit to the nation, the City is doing huge damage to the country and damaging our prestige around the world. The start were the revelations that came out with the Panama Papers, Lux leaks and the Paradise Papers which all revealed the extent of the multi-billion chicanery that the City was engaged in. Tax avoidance, looting of overseas government’s funds, and its role at the centre of the network of islands which act as secrecy jurisdictions for hot or stolen money. A recent example which hit the news is the actions by the banks when a small firm gets into trouble. Instead of helping the firm, advisors are put in with the intention of looting as much as they can from it before declaring it bankrupt.

In Nicholas Shaxson’s latest book The Finance Curse (Bodley Head), he goes into the role of the City of London in some detail and describes it as a place where criminality, theft, tax evasion and looting is the norm. And it is not just some minor series of incidents happening at the margin: after all there are always some bad apples even in a well run organisation. It is the norm. The public became aware of the true nature of the City with the PPI scandal which is nearing its end. Around £30bn will be paid out in what has been a major scandal. The second shock was the banking collapse in 2008/9 which nearly set off a depression. The true extent of this particular scandal was cleverly muted because the then chancellor, George Osborne, was able to claim it was the fault of overspending by the previous Labour government. What the banking collapse actually showed was that the people running the banking system, and the people supposedly overseeing it at the Bank of England, were incompetent and had little idea of the risks they were running. They did not even understand what the true nature of things like credit default swaps were.

Yet few of the people involved have paid a price. Feeble attempts have been made to strengthen the balance sheets of the banks which are likely to be insufficient if and when the next crisis appears. The continuing freedom from effective control and policing Shaxson explains is due to the capture of the political process by the City. Undue tolerance is shown which is wholly unjustified. Take HSBC as an example:

… the HSBC case, there the bank took money from Russian gangsters, organisations like al-Qaeda and Hezbollah, and sanctions busting North Korea and helped launder at least $880m for Mexico’s Sinaloa drug cartel, people so evil joked former New York Attorney General Elliot Spicer ‘they make the guys on Wall Street look good’.

A congressional enquiry into the US Department of Justice’s decision in 2012 not to prosecute HSBC found that Britain’s chancellor George Osborne and the Financial Services Authority had actively interfered at the highest level of the US government and justice system, threatening ‘global financial disaster’ if ‘their’ bankers were prosecuted. p167

Is change possible?

Unlikely. The City is so entrenched and its self-promotion so expert that any attempt at reform is in my view extremely unlikely. In an earlier book, Treasure Islands, Shaxson described the role of the Remembrancer. This man (it always is) is the only unelected person to sit in the House of Commons and he is there, with a half million budget and a staff of six, to frustrate attempts at reform. When our local MP, Mr John Glen, was made a minister in the Treasury with special responsibility for the City, I wrote in the local paper congratulating him on his appointment and suggested he could do the country and his constituents and enormous service by ending this anomalous position which dates back to Magna Carta. The letter went unanswered. Nothing has happened. The City remains a state within a state where the Queen can only enter by permission.

Two professors in America, one at MIT and one at Columbia University, calculated the cost of the financial system to the US economy and calculated it between $12.9 trillion and $22.7 trillion over a 30 year period. A similar exercise carried out on the UK financial sector arrives at a figure of £4.5 trillion at least.

In our Democracy Café events in the Playhouse, we have often discussed different forms of democracy and how it might be improved. We are all aware that the current system is dysfunctional and the spectre of so many second and third rate politicians in charge of our affairs is depressing. However we alter the system, and assuming improvements could be achieved, if, at the centre of affairs is a powerful organisation which is out of control, and not subject to control seemingly by anyone, then no amount of tinkering with the democratic system will make much difference.

Only when people come to realise that the City is damaging their prosperity and the interests of the country not enhancing it is there likely to be a build up of pressure for reform. It will not come from parliament or politicians: after all many will go on under the revolving door system to take up lucrative appointments in … the City. Why bite the hand etc. A prime example was George Osborne who went off to take up a well paid position with BlackRock. Quarter of a mill for a few days work a year – not bad if you can get it.